Apple Maintains Margin with iPod Nano

Contrary to initial reports that Apple may have had to settle with significantly lower profit margins in order to release the flash-based iPod Nano, electronics research firm iSuppli says that the cost to the Cupertino company to produce the player is likely the same as previous models.

iSuppli dissected a 2GB iPod Nano and found $90.18 USD worth of parts. Combined with the $8-10 it costs to produce each model, the Nano ran about $100 USD to produce, said iSuppli. The player retails for $199 USD, meaning a profit margin of just under 50 percent.

Senior analyst for consumer electronics at iSuppli, Chris Crotty, told BetaNews that similar profit margins exist for the 4GB model as well. "The price differential is almost the same as what you'd expect from the increased cost of memory," he said.

Crotty also noted it would be possible that Apple could negotiate better deals for the bigger memory chips used in the 4GB Nano, thus increasing margins. Early reports indicate that the larger model is apparently selling better than the 2GB version.

The profit margins fall in line with other teardowns by iSuppli, including the 512MB iPod Shuffle, with a total cost of $45 USD compared to a $99 USD retail price or a 55 percent profit margin. The Mac Mini, which had $284 USD of production costs yields a 43 percent profit margin on the retail price of $499 USD.

Details of the margins of other models were not known, although Crotty said from his understanding they all hover near the 50 percent mark.

iSuppli assumed a 35 to 40 percent discount on the price of flash memory from Samsung based on research done by the firm. Crotty added that in the teardowns of the Nano that the firm is aware of, Samsung flash memory was used in all but one.

This would seem to confirm reports that Apple purchased a large stock of Samsung memory specifically for the new player. "This makes a lot of sense for Samsung," Crotty said, referring to the company working with Apple.

However, Crotty says that reports of fellow Korean companies accusing Samsung and Apple of collusion are likely untrue. "I certainly don't think Apple and Samsung are engaging in illegal behavior," he said.

Crotty explained that in many Asian companies, different business divisions have a great deal of autonomy. That means the division that deals with flash memory production probably worked on its own to secure the Apple deal without the help of the division that produces digital music players.